In a recent report, Credit for Renting: The Impact of Positive Rent Reporting on Subsidized Housing Residents, Experian RentBureau finds that for subsidized housing residents who have a history of paying rent on time, factoring rent payments into credit reporting helps build their credit history and improves credit scores. Subsidized housing residents are often excluded from mainstream financial services products due to limited or nonexistent credit histories. In the past, only negative rent payment data was reported to credit agencies, but Experian has been working with property managers to include positive rent payment data, such as on-time rent payments, to credit files.

Experian added to its credit database, rent payment data from nearly 20,000 leases nationwide initiated between 1994 and 2013 that had a housing subsidy and positive rent payment history. Experian then used a series of simulations to analyze the impact of rent payment data on credit scores and credit file thickness. The thickness of a credit file, an important factor in a lender’s decision-making, refers to the number and diversity of accounts in a credit file. There are three categories of thickness, “no hit” (no credit history), “thin file” (two or fewer accounts on file), and “thick file” (three or more accounts on file).

Prior to adding positive rent payment history to the database, 11% of subsidized housing residents had no credit history and 41% had a thin file. After adding positive rent payment history, all residents with no previous credit file moved to the thin file category and 23% of thin file residents moved to the thick file category.

Including positive rent payments in credit reporting also improved credit scores. Overall, 75% of the study population who already had a credit file and were therefore “scoreable,” experienced increased credit scores, most by 11% or more. On average, credit scores for previously scoreable residents increased by 29 points. There are three credit score risk segments, subprime (300-600), nonprime (601-660), and prime (661-850). Residents in the subprime segment face limited access to credit, fewer credit offers, and drastically higher interest rates. Sixty-five percent of the study population were in the subprime segment before the addition of positive rent payment history, compared to just 32% of the overall U.S. population.

With the addition of positive rent reporting, 84% of subprime renters and 50% of nonprime renters experienced a positive credit score change. Furthermore, there were 19% fewer people in the subprime group because they migrated to the nonprime and prime risk segments. Meanwhile, the share of the study population in the nonprime and prime segments increased 92% and 24% respectively. For the 11% of subsidized households previously unscoreable, 97% moved into the nonprime and prime risk segments, indicating that most subsidized residents consistently pay their rent on time every month.

The inclusion of positive rent payment in credit reporting provides an opportunity to gain access to financial services for many who have been prevented from obtaining credit or who have only obtained credit at high interest rates. Experian RentBureau suggests that subsidized residents who pay their rent on time should not be at a financial disadvantage just because they rent, rather than own a home with a mortgage. Experian encourages property managers and owners to include positive rent payment history in a subsidized renter’s credit file.